EUR/GBP consolidates below 200-day SMA, around 0.8560 region

• EUR/GBP was seen oscillating in a range below 200-day SMA through the mid-European session.
• Brexit jitters, dovish BoE, disappointing UK macro data weighed on the GBP and extended support.
• Fresh ECB rate hike bets underpinned the euro and support prospects for a fresh bullish breakout.

The EUR/GBP cross seesawed between tepid gains/minor losses through the first half of the European session and was last seen hovering in the neutral territory, around the 0.8560 region.

The cross struggled to capitalize on its gains recorded over the past two trading sessions and remained capped below the very important 200-day SMA, though the downside seems cushioned. Worries that the UK government will trigger Article 16 of the Northern Ireland Protocol, along with the Bank of England's dovish decision last week might act as a headwind for the sterling.

The British pound was further undermined by a softer UK GDP print, showing that the economy expanded by 1.3% during the July-September period. This marked a sharp deceleration from the 5.5% growth reported in the previous quarter and was worse than 1.5% anticipated. Adding to this, the UK Manufacturing and Industrial production figures also fell short of consensus estimates.

On the other hand, the shared currency found some support after the European Central Bank (ECB) – in its latest economic bulletin – noted that inflation is lasting longer than originally expected. Adding the European Commission said that it expects inflation in the eurozone to be 2.4% in 2021, 2.2% in 2022 and 1.4% in 2023, bringing the ECB rate hike expectations back on the table.

The fundamental backdrop favours bullish traders, though a sustained break through the 200-DMA barrier, around the 0.8575-80 region, is needed to confirm the positive bias. Moreover, relatively thin liquidity conditions, on the back of a bank holiday in the US and Canada, further warrants some caution before positioning for any further appreciating move.

Technical levels to watch